April 11, 2017

What happened? Last week saw S&P and Fitch, two credit ratings agencies responsible for evaluating the credit-worthiness of borrowers and related debt, downgrade the rating of South African Government debt to a status of below investment grade or ‘junk’.  This downgrade resulted in a consequential downgrading of South African parastatals and banks. The decision to increase the risk rating of South African debt was largely based on political concerns following the firing of Finance Minister Pravin Gordhan and the apparent shift towards populist policies by the government. Why does it matter? The global investment community relies on the credit ratings agencies to evaluate the riskiness of lending borrowers money – the riskier a borrower’s ranking, the higher the interest rate demanded. In effect this raises the cost of debt financing for the South African government, which limits the country’s ability... Read More